Philip Teoh, Partner, Azmi & Associates, on regulations regarding investment in transport and logistics: Viewpoint

Philip Teoh, Partner, Azmi & Associates

Its strategic location beside the Strait of Malacca makes Malaysia an ideal distribution base of seaborne cargos for the Asia-Pacific region. A prime example of this is that Maersk, the world’s largest container shipping line, has a 30% equity stake in the Port of Tanjung Pelepas, Malaysia’s primary container terminal, after shifting all of its operations there from Singapore in 2000.

There are several initiatives under way which make Malaysia an attractive place for investment in logistics and transport. First is the Trans-Pacific Partnership Agreement (TPPA), which aims to establish new, market-oriented rules for international commerce and reduce trade and investment barriers among TPPA countries. Second is Malaysia’s membership of ASEAN and the ASEAN Economic Community (AEC), whose members form a market of over 600m consumers, with a combined GDP of almost $3trn.

Third is the Regional Comprehensive Economic Partnership, involving ASEAN and its free trade agreement partners: China, South Korea, Japan, India, Australia and New Zealand.

There are two parallel systems of ship registration in operation in Malaysia: the Domestic Shipping Licensing Board and the Malaysia International Ship Registry (MISR). The MISR is governed by Part IIC of the Malaysian Merchant Shipping Ordinance of 1952 and encourages individuals and foreign shipping companies to register their ships in Malaysia without having to comply with the requirements of a Malaysian majority shareholder.

Under the MISR, foreigners can hold 100% equity in a company registered as the owner of the ship, in line with government efforts to encourage foreign investment in the country. The registration of international ships would help to increase the ship registry’s capacity in handling cargo.

Elimination of tariffs will spur import and export of components and goods within Malaysia and the other TPPA countries and will require more warehousing space and efficient logistics. An international integrated logistics services (IILS) provider offers integrated and seamless logistics services (door-to-door) along the logistics supply chain, as a single entity, on a regional or global scale.

Eligible companies can apply for IILS status and, upon approval, be issued with the Freight Forwarding Agent/Customs Agent licence by the Royal Malaysian Customs Department. Approved companies can have 100% foreign equity shareholding.

However, the companies are under obligation to employ majority Malaysians as part of the workforce and utilise Malaysia as a hub for their logistics supply chain services in the region.

Malaysia’s commitments under the ASEAN Framework Agreement on Services and the World Trade organisation are focused on transport and logistics. In addition to commitments made in trade agreements, five subsectors have been autonomously liberalised to allow foreign equity participation since April 22, 2009: (i) Class C Freight Transportation; (ii) rental or leasing services of ships that exclude cabotage and offshore trades; (iii) rental of cargo vessels without crew (bareboat charters) for international shipping; (iv) maritime agency services; and (v) vessel salvage and refloating services.

Malaysia’s commitments under the General Agreement on Trade in Services help govern the terms of market access. For international maritime transportation services (excluding cabotage and government cargo), maritime agency services and vessel salvage and refloating services (except on inland waters), the participating company shall be in the nature of a representative office, regional office or locally incorporated joint venture with Malaysian individuals, Malaysian-controlled corporations or both. The aggregate foreign shareholding in the joint venture corporation shall not exceed 30%.

Anchor text: 
Philip Teoh

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The Report: Malaysia 2016

Legal Framework chapter from The Report: Malaysia 2016

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